The CNB comments on the September 2020 inflation figures
According to figures released today, the price level increased by 3.2% year on year in September 2020. Inflation was slightly lower than in August but remains slightly above the upper boundary of the tolerance band around the CNB’s 2% target. Consumer prices adjusted for the first-round effects of changes to indirect taxes also rose by 3.2% year on year in September.
The September annual consumer price inflation figure was 0.4 percentage point lower than the CNB’s current forecast. Food price inflation was considerably lower than expected. Prices of some items, such as meat, fruit and vegetables – which until recently were rising significantly – are growing more slowly or decreasing. Fuel prices recorded a more pronounced year-on-year fall in September compared with the forecast. The contribution of the first-round effects of changes to indirect taxes, due to an increase in excise duty on cigarettes in March, was also slightly lower in September. By contrast, annual core inflation remains significantly higher than forecasted, reflecting the fading of the previously strong domestic demand and temporarily elevated growth in corporate costs. Growth in administered prices in September was only slightly higher than forecasted.
The inflation developments in September fit into the context of the higher uncertainty relating to the structure of the supply and demand factors underlying the price movements observed in recent months. Moreover, the current epidemic situation is significantly exacerbating the uncertainty regarding future economic and price developments in the Czech Republic. Inflation has so far been qualitatively in line with the CNB’s current forecast. According to this forecast, inflation will remain above 3% until the end of this year, as firms’ loss of revenue during the coronavirus pandemic and growth in their costs will foster continued price growth despite a deep decline in demand and overall economic activity. Inflation will fall markedly at the start of next year in connection with lower growth in domestic costs, a slightly appreciating koruna and a cooling of the labour market. As regards the structure of inflation, this will be driven by core inflation and above all food prices. Administered price inflation will also decrease due to slower growth in electricity prices. By contrast, the fall in fuel prices stemming from the previous collapse of global oil prices will dissipate. Inflation will decrease towards the CNB’s 2% target over the monetary policy horizon and stay close to it in 2022.
Petr Král, Executive Director, Monetary Department